How To Manage A Trade In A Hot IPO (Or ANY Stock For That Matter)
Smoke ’em If You Got ’em
As I’ve mentioned in the past, Money management–the use of protective stops, trailing stops, and profit taking–is crucial to your long-term success as a trader. A simple money management system is to take at least half of your profits when they are equal to or exceed your initial risk. You then move you protective stop on your remaining shares to breakeven. This way, barring overnight gaps, you have a “free” position that has the potential to turn into a homerun (through the use of trailing stops).
Let’s follow up on Interoil Corp.
(
IOC |
Quote |
Chart |
News |
PowerRating), mentioned
Thursday night. For a stock of this price and volatility, a 2-point protective
stop/trailing stop/initial profit target would be appropriate. Notice on Friday
that the stock triggered and rallied to hit the initial profit target levels. At
this point, partial profits (half) could have (and should have) been taken. The
protective stop could have (and should have) then been moved to breakeven. This
way, you have the potential to continue to participate in this stock should it
continue to rally. I’ll follow up on this one (good, bad or indifferent) over
the next few weeks.
Once again, if you’re new to momentum-based swing trading and would like more information on the basics such as trend, entries, and money management, email me and I’ll be happy to send you the primer section from my second book.
On Friday, the Nasdaq gapped open and continued higher in
early trading. Then, after trading sideways throughout mid-day, it resumed its
rally going into the close. This action has it closing well and it pushes it
through overhead resistance. It breaks it out to multi-month highs.
The S&P also put in a solid rally. This action has it
plowing through overhead resistance and has it closing at multi-month
highs.
So what do we do? Oh, what a difference a day
can make! Last night (Thursday), I said that “you probably
want to wait to see if this market can break out (and stick) before looking to
establish new positions. On Friday, we got the breakout (okay, the S&P is a
little shy). Now, we just need to see if it will stick.
No setups tonight. If the market can continue to rally, we
will likely see a plethora of setups on the first pullback.
Best of luck with your trading on Monday!
Dave Landry
P.S. Reminder: Protective stops on every trade!
P.P.S. Learn my newest and most advanced version of my Bow
Ties Strategy. Click
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